2020 (8) TMI 310 - AT - Income Tax

Estimation of income - bogus purchases - AO made 12.5% addition towards alleged bogus purchases on the ground that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers - HELD THAT - Both authorities have taken uniform rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. Further, the rate of profit adopted by the AO is appears to be on higher side when compared to nature of business of the assessee. Considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we are of the considered opinion that rate profit adopted @ 12.50% on alleged bogus purchases is on higher side going by the nature of business of the assessee and hence, we order the Assessing Officer to restrict the addition at the rate of 5% on alleged bogus purchases. Appeal of the assessee is partly allowed.

Summary

Issues:
Disallowed purchase amount on account of alleged bogus purchases.

Analysis:
The appeal was against the order of the CIT(A) pertaining to Assessment Year 2009-10. The assessee, engaged in trading, had its return reopened under section 147 based on information regarding bogus purchase bills. The AO added an amount towards alleged bogus purchases, which the CIT(A) upheld at 12.5% gross profit. The assessee contended that purchases were genuine, supported by evidence, but failed to conclusively prove it. The AO relied on investigations and un-served notices to parties, deeming purchases as bogus. The ITAT noted both sides failed to provide conclusive evidence. Referring to precedents, including the Gujarat High Court case, it was held that only profit element from alleged bogus purchases should be taxed, not the total purchase. Considering the nature of the business, the ITAT deemed the 12.5% addition rate as high and ordered the AO to restrict it to 5% on alleged bogus purchases.

This detailed analysis of the judgment highlights the key issues, arguments, and conclusions made by the ITAT Mumbai regarding the disallowed purchase amount on the basis of alleged bogus purchases.